Daily BriefsMost Read

Most Read: Hitachi Metals, Jardine Matheson Holdings, Amorepacific Corp, Japan Post Insurance, Samsung Electronics Pref Shares and more

In today’s briefing:

  • Bain Bids Up BIG For Hitachi Metals (5486) – Now We Wait
  • Jardine Matheson: Lessons in Dissent
  • Korea’s Full List of Single-Subsidiary Holdcos with Current Sigma & Loan/Float Ratio
  • JPX-Nikkei 400 Rebalance 2021: Pre-Event Basket Adjustments for April-End
  • Samsung 1P Discount Should Go South, Probably as Far South as Historic Low

Bain Bids Up BIG For Hitachi Metals (5486) – Now We Wait

By Travis Lundy

Hitachi Ltd (6501 JP) has, for over a decade, been restructuring itself by selling subsidiaries here and buying them in there. There are two remaining after the somewhat recent sale of Hitachi Chemical (4217 JP), de-consolidation of Hitachi Capital (8586 JP), and buy-in of Hitachi High-Tech (8036 JP) (after a flurry of other deals to sell out stakes in Hitachi Kokusai Electric (6756 JP), Hitachi Koki (6581 JP), Hitachi Maxell and Clarion in the previous few years).

In October last year, I addressed the issue of the selldown of the last two Hitachi Metals (5486 JP) and Hitachi Construction Machinery (6305 JP) in The Right Trade May Be Hitachi, which argued that Hitachi itself was probably the better deal than the subs. Since then, Hitachi is up 39.3%, Hitachi Construction Machinery (6305 JP) is up 3.6%, and Hitachi Metals (5486 JP) is up 23%. 

Mio Kato has written a few times about Hitachi Metals and about how one might not be able to expect a very high takeout price through the sale process that Hitachi was running. I wholly agreed with Mio, because I think it is not an easy asset to sell later, but I couldn’t come up with a reason to sell the stock because I expect funding is available, costs can be cut, Hitachi might keep 20% and sell a call option to help with funding, and if a company needs a lot of work to restructure, I am sure that Bain Consulting could be prevailed upon to provide their consulting services for a price (one of the dirty little secrets of private equity is that GPs get management and incentive fees on assets and sales, but profits in the interim come with costs, and some of those costs can be allocated to the GP as well).

Hitachi took in bids earlier this spring after running an auction process and three weeks ago an article in the FT hit the tape saying “Bain nears $8bn deal to buy Hitachi Metals.” That was around current market price give or take net debt so people were thinking there might not be a premium.

Today, we got a deal announcement. Indeed, Bain is paying near US$8bn, but it is structured in such a way that Bain pays ¥1675/share to Hitachi and ¥2181/share to minorities, which produces a combined price just over ¥1900/share.

This approximates a decent result for everyone involved.  

More below the fold. 


Jardine Matheson: Lessons in Dissent

By David Blennerhassett

As discussed in Jardine Matheson: Strategic Buyout Done, after Jardine Strategic Holdings (JS SP) shareholders voted through, as expected, the Offer from Jardine Matheson Holdings (JM SP), after the vote, Matheson said a number of shareholders in Strategic voted against the acquisition, but also that:

a large number of shares voted against the resolution were held by investors who were not shareholders at the time of the announcement of the Acquisition on 8 March 2021. Some investors have indicated an intention to apply to the Court in Bermuda to appraise the fair value of their shares, in accordance with the process described in the shareholder circular issued by Jardine Strategic in connection with the Acquisition.

I initially wrote “Matheson appears to be suggesting that those who held shares before the announcement, and those who held after, potentially have different cases to argue.”

But after consulting with my colleague Travis Lundy, I omitted this line, as it was effectively moot.

Matheson would have singled out these short-term investors – hedge funds – irrespectively. Yet, such a statement is irrelevant. All shareholders, as at the record date of the Special General Meeting, have the same rights to be treated fairly and rights to dissension.

I note some recent commentary in the media addressing Matheson’s oblique reference to hedge funds, so I’ll provide some commentary sourced from legal references.

Of greater importance is what these dissenters will cost Matheson at the end of the day.

More below the fold.

I’ve extensively dealt with appraisal rights in the Cayman Islands in past insights, which can also provide guidance as to how dissension may be interpreted in Bermuda (where Strategic is incorporated):

Homecoming For Chinese Companies: Appraisal Rights & Fair Value

Trina Solar: Appraisal Rights Judgment Another Setback for Dissenters

Changyou (CYOU US): Short-Form Merger Dissent Now Permitted


Korea’s Full List of Single-Subsidiary Holdcos with Current Sigma & Loan/Float Ratio

By Sanghyun Park

This is the complete list of Korea’s single-sub holding companies. They are typically direct targets of holdco pair trades.

HoldcoTickerSubTicker
Amorepacific Group002790Amorepacific Corp090430
BGF Co Ltd027410BGF Retail Co Ltd282330
Halla Holdings Corp060980Mando Corp204320
Hanjin Kal180640Korean Air Lines Co Ltd003490
Hankook & Company Co Ltd000240Hankook Tire & Technology Co Ltd161390
HANSAE YES24 HOLDINGS CO., LTD.016450Hansae Co., Ltd.105630
HDC Holdings Co Ltd012630HDC Hyundai Development Co294870
Nexen Corporation005720Nexen Tire Corp002350
Nongshim Holdings Co Ltd072710Nongshim Co Ltd004370
ORION Holdings Corp001800Orion Corp271560
Poongsan Holdings Corporation005810POONGSAN CORPORATION103140
Youngone Holdings Co Ltd009970Youngone Corporation111770
Source: KRX

Hansae Yes24, Nexen Corp, and Youngone Holdings are currently at less than -1.0σ on a 20-day moving average.

Again, Nexen Corp and Hansae Yes24 have the widest price-ratio diversion to YTD average. Hanjin Kal and Hankook & Co follow. On the other hand, Orion Holdings has wildly outperformed its subsidiary, Orion Corp. 

We have 6 holding companies with an average daily trading value of +₩5.0B, including Hansae Yes24, which recently saw a hike in trading value.


JPX-Nikkei 400 Rebalance 2021: Pre-Event Basket Adjustments for April-End

By Janaghan Jeyakumar, CFA

JPX-Nikkei 400 is composed of common stocks listed in the First Section, Second Section, MOTHERS Market, and the JASDAQ Market of the Tokyo Stock Exchange. This is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents that are selected based on several factors including market capitalization, trading value, operating profits, and ROE.

A periodic review will be conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. This review will be conducted using the final business day of June as the base date. 

Quiddity provides quantitative research on pre-event basket strategies surrounding this Index Rebalance event. Below is a discussion on the latest adjustments required for the basket portfolio for the 2021 Rebalance based on April-end data. 


Samsung 1P Discount Should Go South, Probably as Far South as Historic Low

By Sanghyun Park

Samsung unveiled the Lee family’s inheritance tax payment plan. But key details were missing. We do not still know which family member gets which company stake.

Unless specified in the will, the inheritance will go at a 1/3 (spouse) to 2/3/N (each child) ratio. But the consensus now is there is a will, and this 1/3 (spouse) to 2/3/N (each child) ratio won’t happen.

The deadline to report the tax payment is April 30. But the family doesn’t need to report who gets what information. The Korean inheritance tax law allows a family to make a collective payment for the entire family. Inheritance sharing can be discussed later, and there is no deadline for this.

Nonetheless, several Samsung insiders familiar with this matter have reportedly said that the who gets what information will be made public as early as next week. All shareholding changes by a major shareholder must be filed and made public at DART within 5 days after changes are made. So, we will know once a decision is reached.


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